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Steep hike in gas price: Power, CNG to get costlier

01 Oct , 2022   By : Monika Singh

Steep hike in gas price: Power, CNG to get costlier

The government has hiked prices of domestically-produced natural gas from normal and difficult fields by 40% and 26%, respectively, for the October 2022-March 2023 period, a move that will likely make gas-based electricity, CNG and piped natural gas costlier, but will boost the profitability of producers like Reliance Industries and state-run ONGC and OIL.

Though input cost of fertiliser companies will also rise as a result of the government’s move, which is in sync with the global price trends, farmers are likely to be insulated from the impact as the government would hike the subsidies on urea correspondingly.

However, the margins of city gas distribution (CGD) companies like Indraprasth Gas, Mahanagar Gas and Gujarat Gas could come under pressure.

The latest hike in gas prices comes on the back of 110% hike in prices announced six months ago for the April-September 2022 period.

”The rate paid for gas produced from old fields, which make up for about two-thirds of all gas produced in the country, was hiked to $8.57 per million British thermal units from the current $6.1,” according to an order from the oil ministry’s Petroleum Planning and Analysis Cell (PPAC). Simultaneously, the price of gas from difficult and newer fields like from deep-sea D6 block in KG basin, operated by RIL and its partner BP, was hiked to $12.6 per mmBtu from $9.92, the order said. Gas from ONGC’s KG 98/2 block will also sold at the higher price meant for difficult fields.

These are the highest rates for administered/regulated fields (like ONGC’s Bassein field off the Mumbai coast) and free-market areas (such as the KG basin). Also, this will be the third increase in rates since April 2019 and comes on the back of firming benchmark international prices.

RIL’s gas production from KG-D6 field is expected to rise to 27-28 mscmd by FY24 from 18 mscmd at present.

RIL has been asking for removal of the ceiling prices on gas. The company’s MJ field in the KG basin will likely go on stream by the third quarter of this fiscal year

Higher realisation for difficult fields will encourage RIL and ONGC to fast-track their deep-water production schedules.

Despite the steep hike in prices in April, domestic gas prices have been lower than landed LNG prices.

Of the total gas consumed in the country, almost 50% is imported LNG.

The volume-weighted average of the price prevalent in a 12-month period in US-based Henry Hub, Canada-based Alberta gas, UK-based NBP and Russia gas are used to fix prices for administered fields of ONGC and Oil India.

For difficult fields like discoveries in deepwater, ultra-deepwater and high pressure-high temperature areas, a slightly modified formula is used by incorporating the price of LNG.

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